Internal economies of scale
Topic: Production Function, Returns and Costs · NCERT: Beyond NCERT
Meaning
Internal economies of scale are cost savings a firm gets from its own expansion. As the firm grows, its long-run average cost (cost per unit) falls. The main types are:
- technical: large machines that cannot be split, and bigger equipment that holds more for its size;
- managerial: hiring specialist managers;
- marketing and purchasing: bulk buying, and advertising cost spread over more units;
- financial: cheaper and easier loans;
- risk-bearing: spreading risk across many products and markets.
Example
A large car maker buys steel in bulk at a discount. It also spreads the cost of one national advertising campaign over lakhs of cars, so its cost per car falls.
Don't confuse with
- External economies of scale: come from the growth of the whole industry or cluster (shared suppliers, skilled labour pools), not from the firm's own size.
Related concepts
- Long run average cost
- Long run marginal cost
- Economies of scale
- External economies of scale
- Diseconomies of scale
- Economies of scope
- Minimum efficient scale